UPM Annual Report 2018

First page Table of contents Previous page 110-111 Next page Last page

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

Management of non-financial matters UPM’s responsibility thinking starts with anticipating, mitigating and managing risks, and extends to creating a competitive advantage and long-term value. UPM continually strives to reduce its risk exposure and improve its performance by using tools such as certified management systems. The majority of UPM’s production sites, as well as its forestry operations, are covered by quality, environmental and health and safety systems, which are certified in accordance with the ISO 9001, ISO 14001 and OHSAS 18001 standards, respectively. All European pulp and paper mills, as well as the UPM Fray Bentos pulp mill in Uruguay and the UPM Changshu paper mill in China, also adhere to the EU’s eco- management and audit scheme (EMAS). Should stakeholders have any concerns or suspect misconduct, they are encouraged to contact UPM or to use the UPM Report Misconduct channel. This channel is available on UPM’s intranet for UPM employees, and also on the corporate website for the company’s external stakeholders. In 2018, 32 (34) cases were reported either through the UPM Report Misconduct channel or directly to internal audit. The complaints related mainly to suspected failures to adhere to the company’s HR Rules or compliance procedures. None of the cases was related to corruption. Three cases led to disciplinary action including warnings and terminations of employment. Reporting framework used UPM uses the GRI Standards reporting guidelines published by the Global Reporting Initiative to measure and report on corporate responsibility at group level. UPM’s corporate responsibility reporting has been compiled in accordance with the GRI Standards: Core option. Committed to anti-corruption The UPM Code of Conduct underlines the company’s zero tolerance attitude towards corruption and bribery in any form. UPM Anti-Bribery Rules explain prohibited conduct and expected ethical behaviour in further detail. UPM performs anti-corruption risk assessment on a regular basis. The annual risk-assessment process includes a top-down risk discussion with the management of each business area. All UPM group entities are also assessed on the basis of country risk and complexity of operations. UPM operates globally and has significant manufacturing operations in several emerging market countries. Such operations require a number of permits and other licenses from the relevant authorities. Some of the countries where UPM operates are perceived as highly corrupt or corrupt according to Transparency International. In these countries, there is an increased risk of corruption, for example in relation to interaction with government officials and in the use of intermediaries when applying for permits and licences requiring governmental approval. Due diligence of suppliers and third parties with whom UPM does business is an essential part of UPM’s anti-bribery compliance programme. UPM requires that due diligence is performed before entering into or renewing any contract with a third party that meets specified criteria. UPM requires anti-bribery contract terms to be included in agreements with such third parties outlining the third party’s commitment to compliance with applicable anti-bribery laws and UPM’s right to audit the third party to verify compliance with these terms. The company also has corresponding due diligence procedures for joint ventures, including mergers and acquisitions. The company’s anti-bribery training covers all white-collar employees. In 2018, the company launched new Gifts and Hospitality Rules applicable in the APAC region and organised 35 training workshops across the region. UPM also continued the implementation of its initiative, launched in 2017, to further enhance due diligence procedures, launched a project aimed at updating its Code of Conduct in 2019 and performed risk-based compliance reviews in selected jurisdictions and operations.

Respect for human rights UPM is committed to respecting human rights. UPM has assessed all its operations and activity and has identified the potential human rights issues and impacts. When considering both the severity and likelihood of these potential issues and impacts, UPM considers the salient human rights issues in the company’s sphere of influence to be environmental pollution, occupational health and safety (OHS), working conditions, protection of children, and forced labour. In 2018, UPM continued its human rights due diligence with site- level human rights assessment in UPM’s operation in Uruguay focusing on working conditions, community relations and contractors. For the assessment UPM co-operated with Shift, the leading centre of expertise on the UN Guiding Principles. Responsible sourcing UPM requires its suppliers, third-party intermediaries and joint venture partners to apply the same principles as in the UPM Code of Conduct including commitment to anti-corruption, environmental and social responsibility, safe products, human rights and occupational health and safety practices. Transparent supplier requirements are the basis for responsible sourcing. These supplier requirements are defined in the UPM Supplier and Third Party Code (available on the corporate website). A number of additional requirements are in place for the sourcing of wood, chemicals, pulp and packaging materials, as well as for safety and logistics. All contractors working on site go through UPM’s safety requirements and a web-based safety induction training. UPM’s supplier risk assessment covers financial, quality, environmental, social and delivery related risks. Based on the risk assessments, UPM selects suppliers, whose performance is then assessed in more detail. UPM then uses tools such as annual questionnaires, audits and joint development plans to monitor compliance. In 2018, UPM joined Together for Sustainability (TfS), a chemical industry initiative that enhances sustainability within in its supply chains. UPM also continued training its key personnel on supplier auditing related to aspects of responsibility. Social and employee-related matters UPM’s responsibility focus areas in social and employee-related matters are: learning and development, responsible leadership, diversity and working conditions. UPM promotes active employee participation and consultation, organised in accordance with international and national rules and regulations. UPM aims to empower and engage employees at all levels through responsible leadership. UPM encourages its employees to pursue professional growth and supports them in learning skills and developing them further. UPM respects the privacy of employees and promotes equal opportunities and objectivity in employment and career development. All UPM employees are treated as individuals regardless of gender, age, ethnic origin, nationality, etc. UPM promotes employees' health and wellbeing. Safety is an essential part of UPM’s activities and business management system. Equal safety requirements are applied to all employees, visitors and contractors working at UPM’s premises. In its People Strategy, UPM has focused on value-based leadership and integrity, aiming higher in business performance and development of agility and competitiveness. In 2018, UPM adopted a new approach to enable our people to perform and achieve business results. An integral part of enabling performance is feedback culture, setting goals in an agile manner and having better one-to-one conversations, and thus several development programmes have been launched. UPM has continued to develop an inclusive and diverse working environment. The proactive safety of employees and contractors has remained an important focus area.

Product stewardship Majority of UPM’s products are made from renewable raw materials and are recyclable. Product stewardship covers the entire lifecycle of all UPM products from the development phase to the end-use and beyond. Ecodesign and product safety measures, such as UPM’s Restricted Substance List, ensure that impacts on products and the environment are considered and minimised. UPM provides product declarations to provide customers with easy access to information concerning the responsibility of products and the supply chain. UPM is the world’s largest producer of EU ecolabelled newsprint, graphic and office papers. Since 2018, all European sites of UPM Raflatac and UPM Specialty Papers have implemented ISO 22000 food management systems and the respective products are designed and produced to meet food packaging requirements. UPM Biofuels has also been developing and testing a new type of sustainable biofuel feedstock in 2018, by growing Brassica carinata as a secondary crop in South America. Environmental matters UPM’s responsibility focus areas in environmental matters are forests and biodiversity, climate, water-use and waste. UPM uses raw materials, water, energy and other resources in a responsible manner and continuously improves its energy, resource and cost efficiency. UPM is committed to sustainable forestry, and the company uses third-party-verified FSC ® and PEFC™ chain of custody certification to ensure that the wood it procures is legally sourced from sustainably managed forests. All UPM owned forests are certified. In November 2018, UPM launched a new commitment to continuously improve the diversity of its own forests in Finland. UPM has had its biodiversity programme in place for over 20 years, and with its new commitment, the next steps will be taken. Starting in 2019, the aim is to create a methodology to further monitor, analyse and report the impacts of forest management on biodiversity, in collaboration with expert stakeholders. UPM favours the use of renewable and other carbon-neutral energy sources. Biomass-based fuels make up 70% (69%) of fuels used by UPM worldwide. If UPM needed to buy certificates to cover its whole direct fossil CO 2 emissions, and if the price of CO 2 certificates were to rise by EUR 5 per tonne, it would mean additional costs of approximately EUR 15 million annually.

All of UPM’s largest production plants are located in areas where there is sufficient water available. The water used by UPM plants comes from rivers, lakes or groundwater resources. UPM uses water responsibly in terms of the company’s water consumption and effluent quality. If the price of raw water were to increase by EUR 0.01 per cubic metre, it would mean additional water costs of approximately EUR 5 million annually. UPM has developed innovative ways to reduce its own waste and to recycle waste or residues with new products such as UPM BioVerno, UPM’s renewable diesel and naphtha, as well as UPM ProFi composite, which partly utilises waste from the production of self- adhesive label materials. Furthermore, residues are used in external products, e.g. ash is used in applications ranging from landscaping to road building. Regulatory changes can have an impact on the options for waste or residue use, thus causing higher costs for alternative solutions. In 2018, UPM’s environmental investments totalled EUR 16 million (21 million). The single largest investment was related to air protection in the boiler re-built project at the UPM Changshu paper mill. UPM’s environmental costs, which were mainly attributable to effluent treatment and waste management, totalled EUR 121 million (125 million), including depreciation. There has been a significant decrease in the number of environmental non-conformances since UPM’s internal Clean Run programme was launched in 2012. No major environmental incidents occurred at UPM production plants in 2018. However, a total of 26 (33) temporary deviations from permit limits or limits set by UPM occurred over the course of the year. Approximately 2,400 (2,600) preventive environmental observations and near misses were reported in 2018. The goal of the Clean Run programme and the related reporting is to improve environmental performance and awareness and to share best practices. In 2018, UPM’s environmental performance improved compared to 2017 for the absolute amount of emissions with a 4% reduction of fossil CO 2 emissions (scopes 1 and 2), a 2% reduction of waste sent to landfills and a 3% reduction of wastewater volume.